Tesla 2012 Annual Report Download - page 41

Table of Contents
applicable zoning restrictions as well as approval and acceptance from the specific high profile retail centers in which we seek to locate our
stores. As a result, we may incur additional costs in order to improve or change our retail strategy.
You must consider our business and prospects in light of the risks, uncertainties and difficulties we encounter as we implement our
business model. For instance, we will need to persuade customers, suppliers and regulators of the validity and sustainability of our business
model. We cannot be certain that we will be able to do so, or to successfully address the risks, uncertainties and difficulties that our business
strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a
material adverse effect on our business and prospects.
We may face regulatory limitations on our ability to sell vehicles directly or over the internet which could materially and adversely affect
our ability to sell our electric vehicles.
We sell our vehicles from our Tesla stores as well as over the internet. We may not be able to sell our vehicles through this sales model in
each state in the United States as many states have laws that may be interpreted to prohibit internet sales by manufacturers to residents of the
state or to impose other limitations on this sales model, including laws that prohibit manufacturers from selling vehicles directly to consumers
without the use of an independent dealership or without a physical presence in the state. For example, the state of Kansas provides that a
manufacturer cannot deliver a vehicle to a Kansas resident except through a dealer licensed to do business in the state of Kansas, which may be
interpreted to require us to open a store in the state of Kansas in order to sell vehicles to Kansas residents. In some states where we have opened
a gallery, which is a location where potential customers can view our vehicles but is not a full retail location, it is possible that a state regulator
could take the position that activities at our gallery constitute an unlicensed motor vehicle dealership and thereby violates applicable
manufacturer-dealer laws. For example, the state of Colorado required us to obtain dealer and manufacturer licenses in the state in order to
operate our gallery in Colorado. In addition, some states have requirements that service facilities be available with respect to vehicles sold in the
state, which may be interpreted to also require that service facilities be available with respect to vehicles sold over the internet to residents of the
state thereby limiting our ability to sell vehicles in states where we do not maintain service facilities.
The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we will face as we sell our
vehicles. In many states, the application of state motor vehicle laws to our specific sales model is largely untested under state motor vehicle
industry laws, particularly with respect to sales over the internet, and would be determined by a fact specific analysis of numerous factors,
including whether we have a physical presence or employees in the applicable state, whether we advertise or conduct other activities in the
applicable state, how the sale transaction is structured, the volume of sales into the state, and whether the state in question prohibits
manufacturers from acting as dealers. As a result of the fact specific and untested nature of these issues, and the fact that applying these laws
intended for the traditional automobile distribution model to our sales model allows for some interpretation and discretion by the regulators, the
manner in which the applicable authorities will apply their state laws to our distribution model is unknown. Such laws, as well as other laws
governing the motor vehicle industry, may subject us to potential inquiries and investigations from state motor vehicle regulators who may
question whether our sales model complies with applicable state motor vehicle industry laws and who may require us to change our sales model
or may prohibit our ability to sell our vehicles to residents in such states. In addition, decisions by regulators permitting us to sell vehicles may
be subject to challenges as to whether such decisions comply with applicable state motor vehicle industry laws. Such challenges, if successful,
could prohibit our ability to sell our vehicles to residents in such states.
We are also registered as both a motor vehicle manufacturer and dealer in Canada, Australia, and Japan, and have obtained licenses to sell
vehicles in other countries such as Hong Kong and Singapore. Furthermore, while we have performed an analysis of the principal laws in the
European Union relating to our distribution model and believe we comply with such laws, we have not performed a complete analysis in all
foreign jurisdictions in
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